Google Closes in on Yahoo's Leadership in Display Advertising

Meanwhile, Marketers Don't Think the No. 2 Online Player Has Made Strides in Search, According to Poll

NEW YORK (AdAge.com) -- Yahoo's business didn't crater in the fourth quarter -- good news for new CEO Carol Bartz. But the bad news: The No. 2 online player predicts first-quarter revenue will be down 10% as the recession starts to hit online-display-ad budgets in a bigger way. What's more, the display-ad advantage it commanded over its closest competitor, Google, is less formidable than it used to be.

Yahoo CEO Carol Bartz
Research firm Advertiser Perceptions shared with Advertising Age the results of its latest Advertiser Intelligence Report, a poll of 1,212 executives at agencies and marketers involved in online advertising. The results won't leave anyone at Yahoo sleeping well at night: Google is making inroads on the display-ad side and is now perceived to be Yahoo's equal in many key metrics -- yet Yahoo hasn't made commensurate gains in search.

"Perceptions of Yahoo are strong and are improving, but what's surprising is how well Google's display efforts have succeeded in creating equally strong perceptions on Yahoo's turf," said Advertising Perceptions CEO Ken Pearl. "Since positive perceptions lead to increasing ad revenue, it will be interesting to see how the online-display market plays out over the next several months."

Yahoo declined to comment on the poll.

The data break down like this: Advertisers give Yahoo very high marks for the results of their ad campaigns and for the marketing services Yahoo provides. But in a survey conducted in November, Google bested Yahoo when it came to results advertisers felt they were getting from campaigns: Advertisers rated Yahoo 29% better than the average of the 150 online media companies in the survey, but Google rated 43% better.

Customer service vs. user experience
On marketing services, Yahoo is still preferred, rating 42% better than average, compared with 7% better than average for Google. But in terms of audience, advertisers perceive virtually no difference between display ads on Google and display ads on Yahoo. And in customer service, Google is beating Yahoo handily: Google rates 19% above the industry average compared with 9% above average for Yahoo, a sign that some of Google's hard work wooing agencies and marketers is paying off.

Some perspective: For all its effort thus far, Google is still a nonplayer in display, and earns 99% of its revenue from search, while Yahoo dominates 33% of the $7.1 billion U.S. online-display market, according to eMarketer. It will take more than matching Yahoo in advertiser perception to close that gap.

Also troubling for Yahoo: It is losing ground in search in the eyes of marketers. Google accounted for 73% of the revenue in the larger and faster-growing search-ad marketplace, compared with Yahoo's 13%, according to eMarketer.

Yahoo's dominance in display is due in part to its scale and to its skill in providing marketing solutions to Madison Avenue. But Yahoo's year of turmoil, including a revolving door of ad execs in key verticals, came at just the time Google was putting the pedal through the floor.

"[Yahoo's] lack of focus internally bled out and diminished their ability to solve their client's marketing problems," said Steve Kerho, VP-analytics at Omnicom interactive shop Organic.

Keeping search
Ironically, Mr. Kerho said he believes the best way for Yahoo to protect its display-ad business is to find a way to succeed in search. "When you look at how people consume media online, it's search and display. Their ability to give end-to-end solutions is hampered if they have to outsource part of that," he said.

While it's early to know how Ms. Bartz intends to approach search, she indicated last week she's not inclined to part with it. "Search is a very valuable part of our business," she said. "Understanding the intent and goals of our users as they seek information online is extremely useful to our franchise in many ways."

Ms. Bartz said she was eager to get to know Yahoo's sales force and "have a beer with them." Better make that a double, because 2009 could be the toughest they've had to face.

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Michael Learmonth

Michael covers the intersection of technology, media and marketing, including Google, Facebook, Twitter and AOL. He edits the Digital section of AdAge.com and oversees editions of Ad Age's Digital Conference in New York and San Francisco. He joined Advertising Age in 2008 after working at Silicon Alley Insider, Variety, Reuters and The Industry Standard.